Natural gas futures picked up where they left off last week, extending gains as weather forecasts trended even colder and Lower 48 production declined. The May Nymex gas contract hit a $1.740 intraday high on Monday before settling a few ticks below that level at $1.731, up 11.0 cents from Friday’s close. June rose 10.6 cents to settle at $1.844.
Spot gas prices also jumped sharply despite generally pleasant weather conditions across the country. NGI’s Spot Gas National Avg. shot up 15.0 cents to $1.430.
Coming off a roughly 7-cent increase at the end of last week, futures wasted no time in mounting additional gains Monday as the latest models became even more supportive by pushing the 15-day forecast period to the cold side of normal, according to Bespoke Weather Services. Forecasts have trended chillier as stronger upper-level ridging around Alaska has become “more of a mainstay” in models over the last week, the firm said. There’s also some occasional light ridging into Greenland that has come into play, all of which Bespoke said should lead to colder air pushing southward out of Canada into the United States starting around the middle of this week.
“The strongest cold relative to normal lies in the Plains and Midwest, but the East shares in some chill as well, something that was almost totally absent in winter,” Bespoke said. “These changes now increase the likelihood that this April will turn out to be quite a bit colder than last April, though not as cold as in April 2018.”
Meanwhile, production in the past several days has been coming in lower than last month, with Texas leading the declines, Genscape Inc. data showed. Production from the weekend and Monday was averaging 92.3 Bcf/d, which is coming in about 0.94 Bcf/d lower versus March’s average, according to the firm.
“During the past three days, the largest declines are posting in Texas at more than 1.2 Bcf/d below March, followed by close to 0.2 Bcf/d of declines in the Permian and 0.1 Bcf/d out of the Bakken,” Genscape senior natural gas analyst Rick Margolin said. “These declines are collectively outweighing a small 0.1 Bcf/d increase in Northeast receipts.”
Gas traders also are closely monitoring developments in oil markets. Some analysts indicated that the latest Baker Hughes Co. rig data likely was behind Friday’s late-session futures, as the firm reported that 62 oil-directed and two natural gas rigs packed up in the last week. That’s on top of the 44 rigs recorded in the prior week, leaving the Lower 48 rig count at 664, down from 1,025 in the year-ago period.
This week, all eyes are on a potential deal between the Organization of the Petroleum Exporting Countries (OPEC) and Russia to lower output, with reductions in crude production of about 10% apparently set to be discussed on Thursday.
“Such an arrangement would be unprecedented,” said Powerhouse President Elaine Levin, who noted that there also is talk of including the United States in the deal. However, the relationship between a potential oil deal and natural gas is “complex,” EBW Analytics Group said. If OPEC and its allies were to cut production, more headroom should, in theory, be left for U.S. tight oil production.
“This would be bearish for natural gas, since associated gas production might remain at higher levels,” EBW said. “If U.S. producers also make cuts, though, gas production could fall, boosting natural gas.”
That’s not so easy, according to American Petroleum Institute CEO Mike Sommers. In an interview with CNN International, Sommers said while the Saudi-led cartel and Russia have few oil companies, making the coordination of supply adjustments feasible, the United States has more than 9,000 producers and Lower 48 producers already are responding to market demands.
“Based on some estimates, you already are starting to see 25-30% of American oil go offline as a consequence of low energy prices, and we think that’s the right way to handle this,” Sommers said.
Deal or no deal, it is becoming increasingly clear that the global market is running out of storage more quickly than many analysts expected, and when this occurs, “prices are likely to drop precipitously to force shut-in of high-cost fields,” according to EBW.
Longer term, the price trajectory for natural gas will likely depend on the extent to which producers in the Permian Basin, Bakken Shale and other tight oil plays that produce associated gas are forced to shut in production, according to EBW. “While oilsands projects in Canada and high-cost U.S. stripper wells are likely to be shut in first, if tight oil shut-ins reach 1 million b/d or more, natural gas prices could strengthen.”
Despite a mostly mild forecast for most of the Lower 48, cash prices raced out of the gate Monday and finished the day well above Friday’s levels.
Western markets led the increases as an exceptionally deep upper-level low is forecast to spend the first half of the week near Southern California, resulting in heavy snow in the southern Sierra Nevada as well as the San Gabriel and San Bernardino mountain ranges, according to the National Weather Service. Heavy rain was projected to fall along the coastal range and in the valleys, with “excessive rainfall” possible for portions of Southern California toward San Diego, the forecaster said.
The chilly outlook boosted SoCal Citygate next-day gas up 43.5 cents to $1.830, while farther north, PG&E Citygate jumped 23.5 cents to $2.410. Twenty-cent-plus gains also were seen throughout much of the Rockies.
Farther upstream in the Permian Basin, Waha cash continued to soften as transactions fell back below zero. Spot gas went on to average minus a half-cent after falling 5.5 cents from Friday’s levels. Other Texas markets moved in line with other U.S. markets, gaining between 10 cents and 20 cents at most pricing hubs.
Meanwhile, all receipts from Columbia Gas Transmission (TCO) onto Texas Eastern Transmission (Tetco) are restricted by up to 262 MMcf/d for two weeks starting Monday because of a compressor station outage at Tetco’s Waynesburg Compressor Station, according to Genscape.
During the repairs, Tetco is expected to be unable to receive gas from TCO and therefore the Waynesburg (C14) interstate interconnect between the two pipes will be set to zero total capacity, Genscape analyst Anthony Ferrara said. “Over the past 30 days, receipts onto Tetco at Waynesburg have averaged 238 MMcf/d and maxed at 262 MMcf/d.”
There are no other anticipated reductions to firm service through TCO’s system, but reductions could become necessary based on operating conditions at: Artemas MA25 (ARTEMAS), Clendenin to Waynesburg MA35 (CLENWAYN), Lone Oak A MA41 (LONEOAKA), and Sherwood A MA42 (SHERWODA), according to Genscape.
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